Oil is likely to soar above $90 per barrel on returning demand for trucking
and shipping fuels this year, according to Hermes Commodities.

The $1.7bn (£1.1bn) UK commodity fund believes that despite a strong rebound in the oil price last year, there has still not been a reflection of the West's emergence from recession.

David Hemming, portfolio manager for Hermes, said in the short term oil is likely to drop because there is still an excess of supply, but global recovery and strong Chinese demand will begin to reverse the situation.

He said the potential for political conflict in Iran or Iraq was also factored into its forecasts.

"As Iran's rhetoric becomes more inflammatory the US could be forced to appear to take action. If action is taken then it will put an upward pressure on oil prices as an invasion could constrict Iranian supply," Mr Hemming said.

Lower demand for transport fuels during the economic downturn sent oil to a low of $40 per barrel in winter 2008, only six months after it hit a record high of $147 the previous July.

Since then, oil prices have rebounded strongly to $70-$80, despite continued depressed demand – as investors turned to the commodity as an alternative to the weak dollar and OPEC, the cartel, restricted supply.

Crude oil prices reached $84 per barrel on Thursday – their highest since the middle of October – amid estimates that floating reserves have fallen from their peak of 100m in storage to 20m barrels.

However, analysts from Commerzbank strongly disagreed, predicting that oil will sink to $65 in the middle of the year, before hovering at $70 by the end of the year.

"Since the beginning of March oil prices are holding steady above $80 per barrel, while fundamental data are basically unchanged," they said.

"The rise in demand for oil is still coming almost exclusively from the emerging countries, especially China. As oil supply is rising at the same time the market is unlikely to tighten.

"We therefore stick with our view that oil prices are biased to the downside in the medium term. By the middle of 2010 they are likely to decline to $65, from where they should rise to $70 by year-end."